There is a moment in every major renovation when the character of the project changes. Before that moment, the work is all demolition and revelation: tearing out what cannot be saved, opening up walls to find what lies within them, discovering in the process both the problems that were suspected and the ones that were not. After that moment, the work turns: the design is settled, the materials are on order, and the first new element — a joist, a lintel, the first course of new brickwork — is placed in position. The direction has reversed. It is still, unmistakably, a building site rather than a building. The roof is still open to the sky. The windows are still out. The interior is still a shell. But the demolition phase is over, and the construction phase has begun. Jamaica’s economy, and with it Jamaica’s property market, reached that turning point somewhere in 1993-1994. The destruction — the devaluation, the inflation spike, the interest rate shock, the fiscal adjustment that has consumed so much of the productive capacity of the public sector — is not over. But its direction has changed. For the first time in three years, the question is not how bad it will get but how good it can become. That is not a small shift. That is the shift that everything else depends on.
The year 1994 finds Jamaica’s economy in a state that is best described as convalescence. The acute crisis of 1991-1993 — the foreign exchange liberalisation shock, the inflation that followed, the monetary tightening that eventually controlled it at the cost of extraordinarily high interest rates — is behind the economy, in the sense that the worst of those specific disruptions has passed. But the legacy of those disruptions — the fiscal burden of the debt accumulated during the crisis, the structural weakness of an economy that has had very little productive investment for three years, the household balance sheets still recovering from the real income losses of the inflation years — remains present and constraining. The construction phase has begun. But the site is still recognisably the ruin it was, and the finished building is a long way off.
Reviewing 1993: The Year the Adjustment Did Its Work
The year 1993 was the year Jamaica’s structural adjustment programme began to show results — painful results, expensive results, but results nonetheless. The inflation rate, which had reached extraordinary levels in the aftermath of the 1991 foreign exchange liberalisation, began its decline. The exchange rate, which had fallen precipitously from the pre-liberalisation peg of approximately J$7-8 to the US dollar through a rapid depreciation that took it past J$20, began to stabilise. The Bank of Jamaica’s monetary policy — which had deployed interest rates at levels that were, for a period, among the highest in the world in real terms — was beginning to succeed in its primary objective of restoring monetary stability.
These were not costless achievements. The stabilisation of the exchange rate and the reduction of inflation required a monetary tightness that was deeply recessionary for the real economy. Businesses that had borrowed at high rates discovered that the underlying economics of their operations could not generate the returns needed to service those borrowings. Households whose incomes had not kept pace with the inflation of 1991-1992 found their real purchasing power substantially reduced. The property market, which had been disoriented by the 1991 devaluation — with prices in Jamaican dollar terms losing much of their US dollar value overnight — was operating in an environment where neither buyers nor sellers had a reliable framework for understanding what property was worth.
The devaluation’s impact on the property market deserves particular examination. Jamaica’s residential property had historically been priced and valued in Jamaican dollar terms, but its actual replacement cost was substantially determined by US dollar inputs: imported construction materials, specialist labour, and the opportunity cost of land measured against US dollar investment alternatives. The 1991 devaluation — which reduced the US dollar value of Jamaican dollar assets by more than half — created an immediate and severe dislocation between the nominal Jamaican dollar prices at which properties were listed and the real economic value they represented in the purchasing power terms that mattered to buyers with access to foreign currency. This dislocation took years to resolve, and the resolution process — the gradual repricing of Jamaican property to reflect its true US dollar replacement cost at post-devaluation exchange rates — produced the pattern of rising nominal Jamaican dollar prices and stable or falling US dollar prices that characterised the market through 1993-1994.
The Interest Rate Paradox: Pain That Creates Its Own Problem
The monetary tightening that brought Jamaica’s inflation under control in 1993-1994 created, as a by-product, the interest rate environment that would become the incubator of the financial sector bubble that would eventually produce the FINSAC crisis. This is one of the more painful ironies of Jamaica’s economic history: the policy that successfully addressed one crisis contained within it the seeds of the next one.
The Bank of Jamaica’s decision to allow domestic interest rates to rise to levels that attracted capital and restored monetary stability was, in the circumstances of 1992-1993, the correct decision. The alternatives — allowing inflation to continue unchecked, or accepting a further devaluation of the exchange rate — would have been more immediately destructive. But the high rates created a financial sector opportunity that Jamaica’s regulatory framework, at the time, was not equipped to manage safely. Institutions that could borrow at rates below the going rate and lend at rates above it could generate headline returns that looked extraordinary. Those returns attracted capital. More capital meant more lending. More lending meant more exposure to the property and equity markets that were, in the mid-1990s, the primary destinations for that capital.
In 1994, this dynamic is in its early stages, and its ultimate consequences are not yet visible. What is visible is the expansion of Jamaica’s financial sector: new institutions being licensed, existing ones growing their balance sheets aggressively, and a competitive dynamic for deposits and for lending opportunities that is, in the near term, benefiting borrowers who have access to the credit that is being extended. For the property market, this financial sector expansion means more credit available for property investment than at any time since the early 1990s. It is credit extended at high nominal rates, but in an environment where inflation is still elevated, the real cost of borrowing is lower than the nominal rate suggests. Borrowers who can generate inflation-hedged returns on their property investments are finding that the high nominal rates are not necessarily as expensive as they look.
The NHT and the Affordable Market: Continuity Through Chaos
Through all of the disruption of 1991-1994 — the devaluation, the inflation, the monetary tightening, the recessionary conditions — the NHT has continued to function as the primary institution of formal affordable housing finance. Its subsidy mechanism — lending at rates well below the commercial market to contributors who have built up their entitlement through payroll contributions — has provided a degree of insulation from the monetary chaos of the crisis years that no commercial lender could match.
The NHT’s ability to continue lending during the crisis period was not without cost. The institution’s own cost of funds — the rate at which it invested the contributions it was not immediately lending out — was affected by the same high-rate environment that was distorting the broader financial sector. And the loan book it accumulated during the crisis years included loans originated in the most difficult conditions, to borrowers whose income levels were under pressure from the inflation-driven real income reduction of the crisis period. Managing these loans — maintaining payment discipline, restructuring where necessary, pursuing recovery on defaulted loans — would remain a management challenge for years. But the NHT’s institutional continuity through the crisis was, for the thousands of Jamaican families who accessed homeownership through its lending during these years, a lifeline that no market mechanism could have provided.
The North Coast: Gilbert’s Rebuilding Dividend
In the north coast resort markets, the mid-1994 picture is one of genuine recovery that owes a paradoxical debt to Hurricane Gilbert. The destruction that Gilbert wrought on the north coast’s hotel stock in September 1988 — devastating in its immediate impact, eliminating years of accumulated investment in hospitality infrastructure — forced a rebuilding that produced, by 1993-1994, a newer and more competitive resort product than had existed before the storm. The all-inclusive operators who rebuilt or expanded in Gilbert’s aftermath created facilities that were larger, more modern, and more aligned with the preferences of the international travel market than the pre-Gilbert stock had been.
The beneficiaries of this rebuilding dividend in the property market are the communities adjacent to the resort corridor — the residential communities of Montego Bay, the retirement and vacation property market of Negril, the tourist-adjacent commercial property market of Ocho Rios — where the revival of the hospitality sector is generating the employment, confidence, and foreign exchange inflows that support property values. Visitor arrival numbers are recovering. The all-inclusive model is demonstrating its resilience. And the international buyers who retreated from Jamaica in the late 1980s and early 1990s are beginning to return, cautiously, to a north coast that looks newer and more competitive than the one they left.
Looking Ahead to 1995: The Recovery That Is Beginning to Be Real
The forecast for 1995 is the most optimistic this column has been able to make since the crisis of 1991-1992. The macroeconomic foundations are improving. Inflation is declining. The exchange rate is stabilising. The tourism sector is recovering. The financial sector, expanded by the high-rate opportunity, is lending more aggressively. And the NHT is carrying forward the institutional momentum that has sustained the affordable housing market through the difficult years.
Property values, in nominal Jamaican dollar terms, will continue to rise in 1995. This is partly genuine real appreciation — the recovery of values that fell in real terms during the crisis years — and partly the ongoing repricing of Jamaican dollar assets to reflect the post-devaluation exchange rate. Either way, sellers who have been waiting for a better moment will find the 1995 market more receptive than any market since the pre-liberalisation years. Buyers who act in 1995 will, in retrospect, have bought at or near the bottom of the post-adjustment cycle.
The single caveat to this optimism — and it is a caveat that deserves to be stated with emphasis — is the financial sector. The expansion of credit that is supporting property demand in 1994-1995 is an expansion built on high nominal interest rates and institutional behaviour that has not yet been tested by a market correction. The credit conditions that look supportive now will look like they were building the next crisis later, if the institutions extending the credit are not managing their exposure with the discipline that the regulatory environment requires. The first course of new brickwork is in place. The direction is positive. But the quality of that brickwork — the soundness of the institutions doing the lending, the sustainability of the rates at which they are lending — is the variable that will determine whether the building that rises on these foundations is one that lasts.
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